Auction Action: Update on recent mining bids

Update on recent mining bids

The 11th tranche of auctions under the Coal Mines (Special Provisions) Act, 2015 (CMSP Act) and the first under the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) of coal mines for commercial mining was completed successfully on November 9, 2020. The auction of 41 coal mines for commercial mining was launched by the Ministry of Coal on June 18, 2020 under the two acts. The mines are located in five coal-bearing states – Chhattisgarh, Jharkhand, Madhya Pradesh, Maharashtra and Odisha. During the course of the auction, six mines were withdrawn and three new mines were added, taking the total mines available for auction to 38.

A total of 76 bids were received for 23 mines, against the 38 coal mines on auction, from 42 bidders. Of these 23 mines, 19 received two or more bids. The mines successfully auctioned included 16 under the CMSP Act and three under the MMDR Act. Some of the large corporate groups that secured blocks in the 19 mines are Adani Enterprises, Vedanta, Hindalco Industries and Jindal Power.

Category-wise, auctions were concluded for three coking coal mines, two partially explored mines, five underground mines, 11 opencast mines and three mixed mines. The coal mines have been successfully auctioned with the winning percentage revenue share ranging from 9.5 per cent to 66.75 per cent. The ministry expects to generate Rs 66.56 billion in revenue from the auction. Further, the ministry has added 11 new blocks to the list of mines planned to be offered in the second tranche of commercial coal mine auctions. With these additions, as many as 75 mines with reserves of about 38,000 million tonnes (mt) of the fuel will tentatively be offered for commercial mining without any end-use restrictions.

Meanwhile, as of February 2021, 105 mineral blocks have also been auctioned and 61 mineral blocks are currently in the pipeline for auction. The majority of blocks have been auctioned for iron ore and limestone mining.

In sum

Overall, the 11th tranche of coal mine auctions achieved 50 per cent success. In comparison, the average success rate of the previous 10 tranches of coal mine auctions remained at about 30 per cent, with only 35 out of 116 mines being auctioned in the past 10 tranches. Notably, global mining giants such as BHP Billiton, Rio Tinto and Glencore did not participate in the latest auctions, largely because these companies are gradually withdrawing from the coal industry as businesses are moving towards cleaner fuels. Interestingly, almost 65 per cent of the bidders were from non-end-user categories such as real estate, infrastructure and pharma. This comes in the wake of the removal of the end-use criterion from the bidding process, which is a positive development for the industry.

The auctions also marked the first set of coal assets to be auctioned through the new market-determined revenue share model, replacing the fixed fee per tonne regime. Of the 35 coal mines auctioned successfully in the past 10 tranches of auctions, only 14 blocks could begin operations. According to Credit Suisse, it could take new owners four to five years to start production, unless the government fast-tracks clearances. Addressing these issues will create a positive atmosphere going forward, and increase investor confidence.